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Paying off equity release early

What the implications are for early repayment of an equity release mortgage

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 10th July 2019* | Published: 27th February 2019

Paying off equity release early

We receive lots of enquiries asking ‘can you pay off equity release early?’ Historically, early repayment has been a clouded area for this form of lending.

The good news is there are a few options available to you if you wish to repay an equity release mortgage.

Once you’ve read through the information below, make an enquiry with us and we can arrange for an equity release specialist to speak with you directly regarding your own specific circumstances.

In this article we will cover:

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Intro to equity release

Equity release schemes are designed to help those who are approaching, or have reached, retirement and are looking to increase their liquid cash position to either supplement their pension income or provide funds for their future retirement plans.

If you’re aged 55 or over and find yourself rich in property assets but rather light on actual cash in the bank, you can use an equity release scheme to unlock the value within your own home, turning a paper value into real money.

Unlike traditional mortgages, with equity release there is no compulsory requirement for regular capital or interest repayments. Any accrued interest rolls up on top of the amount borrowed, which is all repaid either when you die or move into a care home (whichever event occurs first).

Can you repay equity release early?

If you want to - yes you can, absolutely. However, it’s important to reiterate how an equity release lifetime mortgage is designed to remain in place for the remainder of your life or whilst your health allows you to remain living in your main residence.

Unlike conventional mortgages, a lifetime mortgage does not have a set timescale whereby all money owed, plus interest, is paid back in full. There are two key life events that will definitely trigger full repayment:

  • Your death
  • Move into a long-term care home

For joint applicants, this is based on last death or last applicant moving into a care home. At this point, the lender can use the security they hold on your property to instigate a sale and reclaim the money they’re owed.

If you decide to repay all your equity release mortgage whilst you’re still alive it is quite possible that there may be an early repayment fee applied. These fees vary from lender to lender as outlined below.

What are the equity release early repayment charges?

Each lender sets their own guidelines for early redemption charges. Some lenders may opt for a set percentage, based on the original amount borrowed, which reduces over a specific number of years.

For example, a lender may apply early redemption charges for the first five years of an equity release plan, starting at 5% years 1-5 / 3% years 6-8/ 0% thereafter. Others have a 10 year ERC period dropping from 6 to 3% after 5 years until no charges apply from the sixth year onwards.

Some lenders may use a more complex equation to calculate what repayment fee may apply.

For example, charges can be calculated based on the level of long term interest rates linked to an index of government gilts which your lender may use to invest during the term of your lifetime mortgage.

If the benchmark index rate is lower than when the initial offer was made at the time you decide to repay your mortgage in full, then an early redemption charge will apply.

If you’d like to understand more about how these charges can vary across the market, get in touch and we can arrange for a specialist to get in touch and discuss in more detail with you.

Can I get equity release with a repayment option?

Yes, you can. Most lifetime mortgage providers now offer a flexible option which allows for regular, voluntary, repayments to be made of either capital (up to 10% per annum of original amount borrowed) or interest during the life of the mortgage. There are a couple of plans that offer 12% per annum, and the expert brokers we work with know who they are.

The lender will need to conduct an affordability assessment, based on an applicant's income, and use an equity release repayment calculator to determine how much they can comfortably afford to repay.

Utilising the option of voluntary monthly repayments can alleviate any concerns a homeowner may have of accumulating interest encompassing any remaining equity in their property.

As the payments are voluntary, most lenders will allow for the payments to stop at any point during the life of the mortgage if they begin to cause a strain on disposable income.

If you’d like to find out more about what repayment options are available for equity release schemes, make an enquiry and we can ask an advisor we work with to get in touch with you.

Can you get equity release with no early redemption charges?

Yes, this is possible. Most lenders will apply early redemption charges at the early stages of your equity release scheme. However, some providers will set a maximum age, once reached by the applicant(s) whereby no redemption charges will apply.

Some lenders set an early redemption penalty for the first few years of an equity release mortgage, for example, the first five years. Once this point has been reached, no charges will apply.

How does downsizing protection work on equity release?

Downsizing protection is a special feature offered by some lenders. This feature allows you to move into a smaller house after five years and repay your outstanding mortgage debt early.

For example, if you sell your home for £400,000 whilst it has an existing lifetime mortgage debt of £150,000 you can clear the debt and buy a smaller property with your remaining equity. No early repayment fees will apply if you utilise this option.

Why you should speak to an expert equity release broker

At Online Mortgage Advisor we can offer you a first-class service tailored to your own specific needs with access to the most experienced brokers available that:

  • Have whole of market access
  • Have excellent relationships with lenders
  • Are OMA accredited advisors
  • Have completed a 12 module LIBF accredited training course

Speak to an equity release expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 10th July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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